Major OEM vehicle manufacturers invested R8.8 billion in South Africa in 2021

A total of R8.8 billion was invested in South Africa by the major vehicle manufacturers in 2021, the second highest level on record after the record R9.23 billion invested in 2020, according to a report by Roy Cokane in Moneyweb.

This was disclosed in the quarterly review of business conditions in the vehicle manufacturing industry and automotive sector for the fourth quarter of 2021, released by automotive business council Naamsa. This level of investment was made despite the impact and uncertainty created by the Covid-19 pandemic in both these years.

Naamsa CEO Mikel Mabasa said investments by the Ford Motor Company and Toyota South Africa Motors (TSAM) accounted for the bulk of the capital expenditure by original equipment manufacturers (OEMs) last year.

Picture: Naamsa

He noted that both manufacturers were already committed by their parent companies to make these investments irrespective of whether there was Covid-19 or not.

Toyota pledged at the Presidential Investment Summit in November 2019 to invest more than R2.5 billion in the production of a new passenger car at its plant in Prospecton in Durban. It subsequently confirmed it had invested almost R3 billion for the production of the new Corolla Cross sport utility vehicle (SUV), which would also be the first time TSAM manufactures a hybrid drivetrain vehicle. The new Toyota Corolla Cross line commenced production in October last year.

Ford announced in 2020 that it would be investing R1.8 billion in modernising and expanding its Silverton plant for the assembly of both the next generation Ranger and the Volkswagen Amarok from the second half of 2022.

Mabasa said the balance of the capital expenditure last year were smaller investments by other OEMs. He added that Toyota has completed its investment related to the Toyota Cross, while Ford’s investment was phased and significant capital expenditure will still take place this year.

Capex projections would be useful
The Naamsa review did not include any projection of expected total capital expenditure by the OEMs this year. Mabasa said Naamsa has reached out to all OEMs to confirm their capex plans for 2022.

“The President has his own investment conference, which is planned for 24 March. So we have requested all of them to give us a sense [of their plans] before the investment conference is convened by the President so we are able to share that information accordingly.”

Impact on the economy
The importance of the automotive industry to the South African economy was highlighted by the 2021 Automotive Export Manual, which revealed that automotive exports valued at R175.5 billion in 2020 still accounted for 13.9% of total South African exports despite the value of these exports declining by 12.9% from the record R201.7 billion in 2020 because of the impact of the pandemic. Automotive manufacturing is also the largest manufacturing sub-sector in the economy.

Volkswagen Group South Africa

The manual referred to the record R9.2 billion in foreign direct investment in the automotive sector and R2.4 billion by the automotive component sector in 2020.

“Investment at this scale is significant and will promote local value-addition, while importantly, technology is also embodied in the investment,” it said.

Economist Mike Schüssler said the automotive sector is the best manufacturing sub-sector by far for getting investment.

“Outside of our natural heritage [mining and agriculture], the motor industry is by far the biggest attractor of greenfield production. So yes, the motor industry is very important but we must be careful because they do get subsidies and those subsidies mean that someone in South Africa has to pay for them. And we pay for them in higher prices for cars and bigger customs duties to protect them,” said Schüssler.

The Naamsa review said total automotive manufacturing industry employment increased by 529 jobs to 31 708 as at end-December. Schüssler said the formal retail motor industry is the largest employer in the motor industry and employs about 340 000 people.

South Africa 22nd in global vehicle production
The review said the year-on-year decline in vehicle production of 29.4% in 2020 resulted in South Africa’s share of global motor vehicle production decreasing to 0.58% from the 0.69% in 2019 although the country’s ranking remained at 22nd in the world.

However, it said South Africa was ranked 15th globally for light commercial vehicle production with a market share of 1.08%.

Further, the country remained the dominant market on the African continent, accounting for 62.1% of total African vehicle production.

The Naamsa review said member CEOs are generally upbeat that domestic and global market conditions will support the industry’s key performance indicators over the next six months while recognising that the pace of recovery is anticipated to slow down in line with the much lower economic growth expectations for South Africa in 2022.

“Despite persistent structural domestic economic challenges, ongoing Covid-19 global supply chain disruptions, a series of unprecedented domestic shocks and realities of rising costs of living in 2022, the views of the CEOs express the resilience of the industry to adapt to the constantly changing and uncertain future environment,” it said.